COMMITTEE of PUBLIC ACCOUNTS debate - Thursday, 17 May 2001

1999 Annual Report of the Comptroller and Auditor General and Appropriation Accounts:

Vote 31 - Agriculture, Food and Rural Development (Resumed).

Mr. J. Malone (Secretary General, Department of Agriculture, Food and Rural Development) called and examined.

Chairman

As a result of correspondence received from Deputy Ring, the committee will ask questions on the slaughtering factories on which attention has focused in recent times. The Revenue Commissioners will also attend the committee to give details of the amount of VAT recovery and their plans.

I am duty bound to notify witnesses that as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges, and Immunities of Witnesses) Act, 1997, grants certain rights to persons who are identified in the course of the committee's proceedings. These rights include the right to give evidence, the right to produce or send documents to the committee, the right to appear before the committee either in person or through a representative, the right to make a written and oral submission, the right to request the committee to direct the attendance of witnesses and the production of documents, and the right to cross-examine witnesses. For the most part, these rights may only be exercised with the consent of the committee. Persons being invited before the committee are made aware of these rights and any persons identified in the course of proceedings who are not present may have to be made aware of these rights and provided with a transcript of the relevant parts of the committee's proceedings if the committee considers it appropriate in the interests of justice.

Notwithstanding this provision in the legislation, I remind Members of the long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Mr. Malone

Thank you. I am accompanied by several members of my Department including Mr. Aidan Murray, principal officer of the veterinary division at my Department; Mr. John Fox, assistant secretary with responsibility for livestock payments among other responsibilities; Mr. Denis Byrne, assistant secretary responsible for FEOGA payments; Mr. Tom Arnold, assistant secretary with responsibility for financial systems and controls in the Department and Mr. Donal Russell, principal officer and head of our accounts division.

Chairman

I ask Mr. Purcell, the Comptroller and Auditor General, to comment on the four paragraphs. Paragraph 29 of the Report of the Comptroller and Auditor General reads:

The EU makes monthly advances to the Department of Agriculture, Food and Rural Development, refunding payments made to farmers and others who are eligible to receive support under the Common Agricultural Policy. The accounting year for FEOGA operations ends on 15 October. By the following 10 February, the Department submits a detailed claim to the EU itemising all expenditure incurred and amounts received on behalf of the FEOGA guarantee fund. The claim is certified by a private firm of accountants (certifying accountants) appointed by the Department in accordance with EU regulations.

During 1999, £1,270 million was incurred on FEOGA expenditure comprising:


	£m
Export Refunds	356.2
Intervention Costs	89.2
Production Aid	97.2
Premia Schemes	461.5
Other support measures	266.3

Disallowances by the EU in 1999 totalled £3.18 million. In addition to the certifying accountants and normal management controls, the control procedures in the Department include an internal audit unit. The unit also reports on the results of its audits to an audit committee, appointed by the Minister to advise on the development of internal audit within the Department. During my audit of departmental FEOGA operations, I examine the reports of both the internal auditors and the certifying accountants and rely on their work, where appropriate, to enable me to fulfil my audit mandate.

Mr. Purcell

Paragraph 29 briefly outlines the accounting and auditing arrangements for FEOGA guarantee expenditure which in 1999 amounted to £1,270 million. The committee will note that EU disallowances for the year were a modest £3.18 million. A new national accounting system for FEOGA guarantee and guidance expenditure is being introduced as a result of a recommendation in the Cromien report, which identified deficiencies in the way financial information had traditionally been presented. An interdepartmental group, in which my office participated, has agreed a form of accounts and this should help to address the perceived shortcomings.

Chairman

Paragraph 30 of the Report of the Comptroller and Auditor General reads:

Participants in the rural environment protection scheme (REPS) must carry out their farming activities for a five-year period in accordance with an agri-environment plan approved by the Department and are paid annually. In the event of participating farmers failing to comply with the conditions of the scheme, such as not remaining in it for five years, they are obliged to repay some or all of the amounts paid, depending on the particular circumstances. Since 1991 some £560 million has been paid under the programme.

A report issued by the internal audit unit of the Department in March 2000, noted that there were no written procedures in the REPS procedures manual in relation to how farmers withdrawing from the scheme should be dealt with. It also noted that there were no procedures in place to recover moneys which could not be recovered by offset against moneys payable to farmers, such as livestock premix and headage grants and it recommended that appropriate procedures be put in place and action be taken through the courts if necessary to recover moneys due.

The certifying accountants' report on the 1999 FEOGA (Guarantee Annual Account) referred to the Department's debtors ledger and REPS debtors. It noted that while there was a central debtors ledger unit, it was not fully meeting the requirements of the EU Commission and, in particular, was not maintaining a centralised debtors ledger. The report stressed the importance of the continued prioritisation of the implementation of the new accounts system within the Department, as this would provide a fully-integrated central debtors ledger system and would permit a central review of the age of debts as well as the prospects for recovery. The report recommended that the Department address the issue of outstanding debt and take appropriate action.

Under Commission regulations, the Department is responsible for maintaining a ledger of all debtors in relation to FEOGA expenditure and taking the necessary steps to recover the amounts on a timely basis. This is the main function of the Department's debtors ledger unit. It is also responsible for ensuring the ledger's completeness and for monitoring the activities of the operating divisions in the area of debt establishment, recording and recovery. The unit produced a review of the debtors ledger system in July 2000 which indicated that the overall level of REPS debts owing was continuing to rise significantly. The review noted that the debt stood at £1,968,000 as at 30 April 2000 and no recoveries, partial or full, had been received from the vast majority of the REPS debtors.

The records of the Department showed debtors in relation to the farmers early retirement scheme (ERS) of £1,063,232 at 31 December 1999. The main reason for this debt was, apparently, that in the course of a review of farmers receiving early retirement pensions who were aged 66 and over, it came to light that many of them were also in receipt of a pension from the Department of Social, Community and Family Affairs, which had not been deducted from the early retirement pension. Since 1991 some £312 million has been paid under the scheme.

In response to my inquiries the Accounting Officer stated that: penalties applied under REPS were clawed back from participants' future payments where possible. Debts occurred when participants' remaining payments were not sufficient to offset penalties due or where participants were removed or withdrew from the scheme and previous payments had to be recovered. Since the inception of the scheme in 1991 until July 2000 £1.3 million in debts have been recovered from 426 debtors.

The policies and procedures for the recovery of amounts owing in respect of REPS were now detailed in the REPS Procedures Manual for Debt Recovery, as recommended by the internal audit unit in March 2000. The manual included formal procedures in relation to review of data entry and transfer of amounts owed and subsequently recovered and procedures would be reviewed regularly to ensure their adequacy. It was acknowledged that the recovery process had been slow and that the level of debt had increased, but the full effect of the consistent referral of debts to the Department's over payments section had not yet become apparent and that this together with improvements in debt management generally, would in due course generate results. The Department was also giving consideration to alternative means of debt recovery such as the factoring of debts and the use of legal proceedings.

The Department had put increased emphasis at divisional management level on the importance of debt management. Additional resources had been allocated to debt collection, as recommended in the 1999 certifying accountants' report and an individual assigned to the REPS unit had been given specific responsibility for debt management. Further additional staffing had been approved for the REPS area and, as these posts were filled, divisional management would continue to review resources to ensure that they were adequate. The increased resources, together with additional management input, would ensure a more focused approach and greater potential for debt recovery.

It was felt that as a result of these measures, together with work completed on the development of the debtors' ledger database, the Department would be able to comply with EU Commission standards and that financial corrections by the EU Commission were unlikely.

It was a condition of the ERS that participants, on reaching the age of 66, must apply for a national retirement pension and notify the Department of the outcome. A significant number had not done so in the past, however, and it was from those cases that the bulk of the ERS debt had arisen. Of the total ERS debt of £1,063,232 as at 31 December 1999, £836,408 related to national retirement pensions. The control procedures involved the periodic identification and investigation of participants who had reached the age of 66 but who were not having a national pension offset against their ERS payments. However, the frequency with which this control procedure was activated proved insufficient and a corrective exercise begun in 1999 and now in its final stage had identified a significant number of overpayments.

Procedures in place since the beginning of 2000 would ensure that future debts relating to national retirement pensions did not arise. The Department had also arranged to have direct on-line access to relevant social welfare computer records which would give the Department immediate access to all necessary information on ERS participants' national pension entitlements as a means of verifying the information given by participants on social welfare pensions. The remainder of the ERS debt arose mainly from irregularities, where participants in the scheme or transferees broke their undertakings. These were of their nature difficult to predict but the Department's inspection system was the chief deterrent.

About 75% of the existing ERS debt related to participants still in the scheme and could be recovered by withholding part of the payments due to them during their remaining time in the scheme. Between January and July 2000 £400,000 was recovered in this way. Where this was not possible repayment was demanded by the Department. The Department was giving consideration to other means of debt recovery, where the repayment demands were ignored.

Mr. Purcell

In this paragraph, I set out the position in relation to the recovery of moneys due to be repaid to the Department under two EU funded schemes: the rural environment protection scheme, commonly known as REPS; and the farmers early retirement scheme. In the case of REPS, the debts generally arise from participants withdrawing from the scheme before the end of the stipulated five-year period, or for non-compliance with the terms of the scheme. Once the debt is established, recovery can usually be effected over a period of time by deduction from other departmental payments to the individuals, such as headage or premium payments.

Where a former participant is no longer in receipt of payments from the Department, it is more difficult to recover the debts, which, given the nature of the scheme, can be substantial. At the end of January 2001, the last date for which I have firm figures, the total outstanding REPS debt stood at £2.5 million. My concern is that there should be greater focus and determination within the Department to recover these moneys.

In the case of the early retirement scheme, the bulk of over-payments arose due to the failure of the Department to abate the rate of payment to take account of the State old age pension once the recipients under this scheme reached 66 years of age. It is a condition of the scheme that recipients should notify the Department when they have been successful in their application for an old age pension. A significant number had been remiss in this regard. The Department had been somewhat slow in checking cases where the recipients were not shown as being in receipt of old age pension, but they have since completed a systematic exercise in this area.

Total outstanding over-payments at the end of last year amounted to £2.4 million of which just over £2 million relates to the failure to notify the concurrent receipt of the old age pension. It is expected that most of the money will be recovered by deduction from on-going entitlements under the scheme.

Chairman

Paragraph 31 of the Report of the Comptroller and Auditor General reads:

Problems in relation to the effectiveness of the procedures to collect land annuities and rents have existed since the mid 1980s and have previously been referred to in the 1985, 1992 and 1996 Comptroller and Auditor General Reports on the Appropriation Accounts.

The arrears increased from £2.2 million in 1985 to £6.1 million in 1992. Following the introduction of a scheme in 1993 under which high interest annuities were reduced, small annuities were written off and farmers not in arrears were allowed to buy out their annuities at a discount of 50%, the level of arrears decreased to £2.6 million in March 1994. The amount of income forgone as a result of the scheme was £16.3 million. The arrears again continued to grow and stood at £4.5 million at April 2000. The figures indicate that annuities and rents are on average not collected for some 2.5 years after their due date. Apart from the risk that some of this debt may never be collected, the arrears give rise to a significant and continuing cost to the Exchequer due to the financial cost of carrying the debt and the interest forgone. The cost incurred in billing and collecting these debts in 1999 was £292,642.

Where the Department has, as stated in previous reports, indicated a number of measures which it proposed taking, the arrears figures over the past ten to 15 years would suggest that they have been largely ineffective.

In a review of the collection procedures being employed by the Department, carried out by my staff, it was noted that the offsetting of land annuity and rent arrears against headage and premix grants owing by the Department to farmers ceased in 1993 but was recommenced in 1998 and arrears of approximately £250,000 were collected by this measure in 1999. It was also noted that there were doubts about the legality of the procedure and the Attorney General had advised in June 1998 that legislation would be necessary to put the procedure on a sound legal footing. The necessary legislation has not been introduced. It was also noted that interest is not charged on annuity and rent arrears.

A review carried out by the economic and planning division of the Department in 1999 recommended that interest should be charged on overdue accounts, but that this would require minor legislative amendment to the Land Acts. Greater use of offsetting was also recommended in the review. In the fight of the level of annuity and rent arrears which has existed over the past 15 years, I sought the Accounting Officer's views on the adequacy and effectiveness of the procedures employed by the Department to collect land annuities and rents, and enquired as to the Department's policy on offsetting arrears against moneys owed to farmers and the charging of interest on arrears and whether there was any expectation within the Department that performance would be improved.

The Accounting Officer stated that:

A major reason for the increase in arrears since the end of 1993 was the resource problems which the Department faced in implementing the CAP reform schemes during the 1990s resulting in an inability to pursue defaulters as diligently as would have been desirable. The arrears peaked at £5.2 million in June 1998 when 8,700 annuitants were in arrears. Since then there had been a decline in the level of arrears to £4.8 million in June 2000 with 5,900 annuitants in arrears. The Department had taken a number of measures to reduce the arrears. Between 1993 and 1996 collection work was principally confined to issuing bills and recording cash payments which were made to the collection office in Castlebar. In view of the continuing growth in annuity arrears, the Department decided in 1996 to assign an officer full-time to collection work and seek repayment from the top defaulters through visits by the Department's inspectorate. A new computer system for billing and recording receipts of annuities was introduced in 1998. Also, in 1998, the Department decided to resume offsetting from headage and premium payments. Following a further review of the situation during 2000, the Department had decided to take a more comprehensive approach towards reducing the level of arrears and the Minister intended to bring these proposals to Government in early autumn.

The Department adopted a targeted approach to securing repayment of arrears from the largest defaulters in 1996, when 150 files - each involving minimum arrears of £4,000 - were referred to the inspectorate. The visits of Departmental inspectors were extended in subsequent years to defaulters with minimum arrears of £2,000 and a total of 620 farmers had now been visited. In some cases substantial payments were made as a token of good faith with promises to clear the balance of the arrears over a number of years. In other cases written consent to offset against headage and premium entitlements had been obtained. Where the outcome of the visit was unsatisfactory the inspector's report was considered with a view to what further action should be taken. In the course of and follow-up to these visits £14 million had been collected in payments made to inspectors and follow-up payments made directly to the Department. Some £700,000 had been offset against headage and premium entitlements with or without the consent of defaulters. In addition, 40 warrants for arrears amounting to £343,000 were issued and £91,563 has been paid on foot of them. Some 22 farmers had been given the benefit of rescheduling and their capitalised arrears amounted to £213,000. It was a condition of rescheduling that the beneficiary must give written consent allowing the Department to offset against headage and premium entitlements if he falls into arrears.

The Department's policy on offsetting has been determined by EU policy and law. It had operated offsetting to a limited degree in the early 1990s. However, following the introduction of the new direct income schemes under CAP reform, the EU Commission advised Member States in 1991 that offsetting was not legally permissible. This position was based on the view that payments under the schemes had to be paid in full to the beneficiary. In the light of this, the Accounting Officer stated that his Department had no option at the time but to cease the practice of offsetting. However, in 1995, the Danish government took a case to the European Court (the Jensen case) seeking to establish a right to offset certain EU payments against liabilities which a farmer had in respect of the Danish State. In 1998, the European Court found in favour of the Danish Government and in the light of this judgment, the Department resumed offsetting from 1998 onwards.

Offsetting of annuity arrears was confined to headage and premix schemes. This was due to administrative reasons, as the division dealing with these schemes was based in Castlebar along with the section dealing with the collection of annuities. Since the re-introduction of offsetting in 1998, a total of £512,810 had been offset. In 1999, £249,905 was collected from 188 farmers using the offsetting measure. There were limitations in the computer systems to assist in offsetting and there was a significant amount of manual work involved.

It was not possible to say with accuracy how many farmers with annuity and rent arrears on 1 January 1999 received headage or premix grants or grants of any type from the Department in 1999. This was because, in many cases, the names and addresses of annuity payers and of beneficiaries of payments did not match. This shortcoming would be addressed in the context of the development of the new departmental client database on which all basic client details would be held. The development of this database was at an advanced stage and when completed, it was the intention that any money owed to the Department would be automatically offset against money due to be paid to the beneficiary.

There was no provision in the purchase or rental agreements which have been signed between the Land Commission and allottees for charging interest. It was considered that a legal challenge to charging interest would be successful. Furthermore, the Department was not aware of any provision in the Land Acts that would enable interest to be charged and it was not considered possible to enact legislation providing for the charging of interest on arrears arising under existing agreements. The Department would, however, seek the advice of the Attorney General's office on these points.

The Department had earlier in 2000 reviewed the adequacy and effectiveness of its procedures to collect land annuities and rents. While progress had been made, it had not been rapid enough or effective enough. The main way through which effectiveness could be improved was through a larger number of farmers being subjected to offsetting and the key to achieving this was through the final development of the client database which would enable a match to be made between farmers with annuity arrears and beneficiaries from other departmental schemes. It had also been decided to extend the requirement to redeem annuities when consents to let holdings were granted.

The Minister intended bringing a memorandum to Government in early autumn proposing legislation on a number of Land Commission matters, including rationalisation and updating of the legal basis for offsetting and the upgrading of the status of warrants issued to county registrars for enforcement against annuity defaulters from enforcement orders to attachment orders. The Attorney General's office has advised that legislation would be necessary to make a warrant the equivalent of any attachment order which would mean that a county registrar could then direct any institution which owes money to a defaulter to pay it to him for onward transmission to the Department.

Consideration was being given to the employment of a professional debt collection agency and this, together with the other measures in train, should lead to a significant decrease in the land annuities and rent arrears.

Mr. Purcell

Paragraph 31 is an old chestnut which relates to the continuing problems experienced by the Department in its efforts to collect land annuities and rents. Despite various measures taken by the Department over the years, and an attractive buyout scheme in 1993, few inroads have been made in the arrears which stood at more than £4.5 million last year. Part of the problem stems from the fact that the pursuit of defaulters was never the top priority because of demands elsewhere in the Department. The current position is a testament to the inadequacy of the efforts undertaken. The lack of decisive action, together with the absence of any provision for interest on outstanding annuities meant that there was little incentive for recalcitrant landholders to pay.

The paragraph outlines some of the more recent attempts to improve the position, most notably the resumption of deducting arrears from grants due to farmers under the various schemes, although limitations in the Departments computer system have prevented this measure from being applied across all schemes. This problem is being addressed and this facility will be available in the near future. Legislation is currently being prepared to regularise previous initiatives and to provide a solid legal basis for offsetting annuities against grant payments. The legislation also provides a more effective means of collecting arrears where offsetting is not an option. Hopefully there is light at the end of that tunnel.

Chairman

Paragraph 32 of the Report of the Comptroller and Auditor General reads:

In the aftermath of the decision by the EU Commission to impose fines totalling £68.7 million on Ireland as a result of weaknesses in the operation of the beef intervention system in Ireland in 1990-1992, the Government set up an expert group to examine the feasibility of recovering some or all of the disallowed amounts from the beef industry. The group made its report in March 1996 and concluded that the imposition of a general levy on the industry or, indeed, a specific levy on those companies where there was evidence of wrongdoing, would not be sustainable.

In relation to specific recoveries based on proven irregularities, legal advice was obtained by the group that the disallowance levied on Ireland did not of itself give any entitlement to the Minister for Agriculture, Food and Rural Development to recover any part of the disallowance from companies who may have featured in the case against Ireland by the Commission. Any proceedings brought against companies must be based upon a recognised cause of action in Irish law and be proven in accordance with the applicable rules of evidence in civil proceedings. The main elements relied upon by the Commission in their disallowances related to inadequate control systems by the Irish authorities. In addition, certain companies were alleged to have retained meat yields in excess of the minimum required by the EU regulations and the group considered that this might give rise to the possibility of proceedings. The group pointed out that there is a substantial difference in the procedure and burden of proof as between the Commission's application of disallowances and Ireland's possibilities for recovery arising from irregularities. The proof required in order to win a civil claim for recoveries would be extensive and detailed.

The position regarding the specific action takes by the Department on recoveries relating to the disallowances can be summarised thus: during the course of the investigations into the beef processing industry by the Beef Tribunal in May 1991, a former staff member of a beef processing company disclosed serious irregularities at a Rathkeale boning hall to the Tribunal. The Minister decided to set up a Control Enquiry Team which visited the plant at Rathkeale in October 1991. The team identified a number of serious irregularities in the conduct by the beef processing company of de-boning and canning of intervention beef, which were later to become the subject of a whole chapter in the Beef Tribunal Report. As a result of what was found by the team, the Minister suspended intervention de-boning operations at Rathkeale in accordance with the de-boning contract, refused to pay the de-boning and canning fees for the contracts in question and referred the matter to the Gardaí.

The Director of Public Prosecutions brought criminal proceedings arising out of the irregularities against three senior employees of the company at Rathkeale involved in boning operations. In April 1995, two of the employees pleaded guilty in the Circuit Court to three charges of conspiracy to defraud the Minister arising from the misappropriation of intervention beef at Rathkeale. The third employee was acquitted by the trial judge. He has taken a case against the Minister for damages arising out of the criminal proceedings. Separate criminal proceedings were commenced against three other senior employees of the cannery at Rathkeale, arising out of the canning of beef for the former Soviet Union. The three all pleaded guilty of conspiring to defraud the Minister.

In October 1991, the Department asked the Attorney General's office to proceed with civil cases against the company. In February 1996, the Minister issued proceedings for the recovery of damages of £2.7 million arising out of the misappropriation by the company, its servants or agents of intervention beef the property of the Minister, which was de-boned at Rathkeale. In April 1996, the Minister issued a second set of proceedings against the company concerning further irregularities at Rathkeale in respect of canning operations carried out under an EU scheme which provided for the supply of canned meat intended for the former Soviet Union. In this case the Minister is seeking to recover £0.9 million arising out of the misappropriation of more than ten thousand cartons of intervention beef. The first case should soon be ready for trial and in the second case the Minister has sought a trial date.

In December 1996, the company issued proceedings against the Minister for £1.6 million damages because of the non-payment of de-boning and canning fees at Rathkeale. In October 1997, the Minister issued proceedings against the company for the recovery of damages of £1.8 million for allegedly retaining meat yields in excess of the minimum required by EU regulations in the boning halls of ten of its subsidiaries. The Department delivered a statement of claim in February 1997 and following an order of the Court the company delivered its defence on 24 July 2000.

The Minister is taking four sets of cases in respect of export refunds. In August 1990, the Minister issued proceedings against five companies to recover £454,000 in respect of forfeitures of export refunds on exports of beef to Canada and the USA during 1983-1985 which had been rejected. In January 1992, the Minister issued proceedings against two companies to recover £16,000 as securities were released before the Department became aware of the failure to market the beef in South Africa. In 1994, the Minister issued proceedings against two guarantors to recover £1.16 million as a result of their failure to honour their guarantees. Finally, in January 1998, the Minister issued proceedings against a company to recover £595,000 of export refunds on beef rejected in Egypt in 1993.

The Department is also involved in another series of cases arising from a fire which broke out at a cold store in Ballaghaderreen, County Roscommon in January 1992. About seven thousand tonnes of intervention beef with an approximate value of £20 million, which had been stored there on behalf of the Minister for Agriculture, Food and Rural Development was completely destroyed. While intervention beef is the property of the EU, the Department, as EU Intervention Agency, is responsible for its safe custody and is obliged to compensate the EU for any loss that may occur. Thus, the Minister was obliged to refund £19.8 million to the EU in respect of the beef destroyed. Further costs sustained involved dean-up expenses of (£0.8 million). The Commission has proposed a further correction of £9 million to convert the intervention price for carcass weight into boneless yield. The Department has presented counter-arguments on this amount for the Commission's consideration. A decision is expected in early 2001.

In January 1992 the Department notified its brokers of the fire and provided an estimate of the cost of the beef destroyed and the clean-up operation. The estimated cost, at that time, was £21.9 million but the actual cost came to £20.6 million. In February 1992 all insurance companies involved under the first lead insurer denied liability and sought court orders against the Department to this effect on the grounds that they alleged that cover had been cancelled from 31 October 1991. They also claimed material non-disclosure by the Department. The Minister counter-claimed against the insurance companies for the recovery of the costs arising from the fire.

In 1993, the Minister instituted proceedings against another insurance company with whom the insurance brokers had purported to replace the original lead insurer. This insurance company challenged the jurisdiction of the court, an objection ruled ill-founded by the High Court in March 1998. An appeal is pending in the Supreme Court. In 1997, the Department instituted proceedings against its insurance brokers.

These cases are being pursued on the Minister's behalf by a private firm of solicitors appointed in July 1999 at the request of the Chief State Solicitor because of the complexity of the cases. Other estimated costs incurred by the Department since the fire occurred are interest on moneys borrowed for the value of beef destroyed and repaid to the EU, and legal costs.

Mr. Purcell

Paragraph 32 was one I included at the request of the committee following meetings last year on the recoverability of moneys by the Department under EU schemes. It is an attempt to bring together in a summary form the background to, and the status of, the legal proceedings the Department has taken against various parties for the recovery of moneys which it considers to be due to it under EU financed schemes. The committee had voiced concerns in previous years that the Department might have been more diligent in its efforts to recover moneys which had been paid out to meat companies in particular, which had later become the subject of disallowances by the Commission, leaving the taxpayer to pick up the tab.

After the Commission imposed disallowances totalling £68.7 million in 1995, the Government set up an expert group to examine the feasibility of recovering all or some of the disallowed amounts from the beef industry. The group concluded that it was not open to the Department to recover the amount of the disallowances by way of a levy on all or part of the industry and that any recovery action would have to be on the basis of a civil claim against companies in respect of specific irregularities. In this respect the group pointed out that the burden of proof to sustain such a claim would be extensive and detailed, unlike the grounds for disallowance by the Commission.

In summary, there are three separate claims in train against AIBP, two relating to irregularities at Rathkeale and the other to meat yields in the boning halls of ten subsidiaries. The total value of the three claims is £5.4 million. As far as I am aware, none of these civil cases has been determined to date. There are four sets of cases in respect of export refunds, totalling £2.36 million. Again, none of these cases has been finalised in the courts.

In terms of value, the biggest claim relates to a series of cases arising from a fire at a coal store in Ballaghadereen in January 1992, where £20 million worth of beef was destroyed. The figure may rise to almost £30 million if a correction imposed by the Commission is upheld and does not include clean-up and legal costs and interest on money borrowed to compensate the European Union. There is a lot of money to play for. The essential question to be answered is whether the beef was under insurance cover at the time and, if so, with whom was it insured. If it was not insured at the time, why not and who was responsible for the omission? The committee will appreciate that the complexity of these cases is not conducive to speedy resolution. It is important that the Department continues to pursue the cases in a committed and diligent manner.

Chairman

I know the committee clerk wrote to Mr. Malone asking for an opening statement to be given to members one day in advance in order that we would not have to sit through a long speech. I ask him to comment briefly on what the Comptroller and Auditor General said. We will then go directly to questions.

Mr. Malone

I do not have an opening statement. Mr. Purcell identified four separate issues, two of which are related. As a general comment, I would like to bring to the attention of the committee the fact that the Department of Agriculture, Food and Rural Development has made considerable progress in developing its systems and controls over the past number of years. I have appeared before the committee many times.

Without getting bogged down in the detail, we have made progress in four broad areas. The Department has the wherewithal, data and data management systems to enforce controls effectively. Many controls can now be enforced through desktop checks and many such schemes are run. We have strengthened our auditing capacity. Accreditation, a matter familiar to the committee, has been bedded down. The Department is audited by a firm of private auditors as well as the Comptroller and Auditor General, which means the account can be signed off. The Department has an internal audit unit and audit committee.

Financial systems within the Department have been improved and a new accounts system will go live in July. The new system will be an important development and give us more modern techniques and facilities to manage business. Notwithstanding recent events, the Department has greatly enhanced animal controls by introducing the cattle movement monitoring system, a good system which will be further developed to include sheep.

As the Comptroller and Auditor General pointed out in relation to paragraph 29, the level of disallowance, £3.185 million of total expenditure of £1.27 billion, is relatively small. I do not defend any disallowance, however, and the Department's objective is to ensure disallowances are discontinued. For the information of the committee, the £3.185 million includes £1.2 million of extensification payments. The opinions of the Department and the European Commission differ as regards the calculation of stocking density. About £1 million of extensification payments can be classified as late.

The Department is caught between a rock and a hard place as it is required to make 96% of payments before the closing date stipulated by the Commission and penalties will be imposed if the stipulation is not met. Difficulties arise in certain cases as decisions cannot be made until additional information is provided by an applicant. If we make the difficult choice of refusing to pay, information may later come to hand to justify the payment. It can be seen, therefore, that the Department is placed in a bind. I hope this explains the breakdown of the £3.185 million.

I agree with Mr. Purcell's remark that debt management and collection is an issue that needs to be treated seriously within the Department. In the past two or three years our approach to debt has been strengthened and enhanced by a comprehensive debt management policy, involving prevention, reporting, recovery and write-off. I will give the committee more information if it wishes. Half the battle is fought by preventing debt. Systems of proper recording have to be put in place and farmers who owe money have to be informed and given due notice. A proper procedure is needed to recover debt, for example, through off-setting. As premium schemes involve ongoing payments, if we overpay, we can offset the amount in a subsequent payment.

I have been asked about the rural environment protection and early retirement schemes. Effectively, the Department enters into a five year contract with a farmer who wishes to avail of the REP scheme. The payment is made in advance and there must be a system of recovery if problems come to our attention. The REP scheme has a dedicated staff and in many cases debt can be recovered against other payments. Hard options have to be considered if progress is not made.

A large portion of debt from the early retirement scheme relates to applicants who avail of the scheme and then become eligible for social welfare pensions. A direct link with social welfare officials has been put in place in recent times. Therefore, if an individual draws down social welfare payments, we are automatically notified. I am confident that a build-up of debt and other problems can be avoided through such a preventive system. The fact that there is a dedicated staff working on this programme means I can assure the committee debt collection is an issue we take seriously. It features in our accreditation exercise.

Mr. Purcell outlined that land annuities are a recurring difficulty. There is no point in disputing that it has proved difficult. Progress has been made as the level of debt has been higher than its current level of £4.2 million, a level I do not defend. Initiatives have been attempted, including sending the departmental inspectorate to visit those with the highest levels of debt. We have put in place the off-setting mechanism but during the 1990s a problem arose in that it was not absolutely clear that we could legally do that. It has become more clear so we are now off-setting.

The most fundamental point I wish to bring to the committee's attention is that we had a Government decision in the earlier part of this year for new legislation to tidy up some issues in relation to the Land Commission and there are a number of initiatives under that heading that we will be taking. We will make off-setting legally secure and provide for warrants. We would make those warrants for execution to attachment orders and that is a very strong provision. We would also build in a provision whereby sale of land could not go ahead if there was a backlog of annuities. We are actively looking at the idea of professional debt collection and that is a difficult decision. We intend to try out this system. We take this issue seriously. It is a recurring problem and we want to deal with it. We are prepared to take hard decisions and we are backed by a Government decision to go ahead with preparation of the legislation. We hope to have the draft headings of a Bill some time in the autumn.

The committee will be familiar with the whole issue of recoverability of money, under heading 32 of the beef fines. It is an old chestnut but the point I labour is that getting these cases to court has proved very difficult. I was fairly confident last year, when I appeared here, that we would get at least one or two into court. What happened with one case we were on the brink of getting into court was that we were hit with a very big claim for discovery. In recent weeks, there has been an important development and there is now a motion from the Goodman side to have these cases heard by a single judge. In other words, the four cases would be consolidated into one large one. We see that as a positive development and very much welcome any initiative that brings this issue to a head and gets it into court. That motion is due to come before the court in July. This issue is taken very seriously in the Department and in the Office of the Attorney General leading to the establishment of a working group between us and them to monitor progress in these cases. Its meetings are attended by the Minister and the Attorney General so we are fully aware of the significance and importance of these cases as well as the significance and importance of bringing them to a clean and quick conclusion. It will be appreciated that we do not control the court mechanisms and it is very difficult to get cases heard, particularly if you are continually hit with discovery claims.

The Ballaghaderreen fire case is very familiar to the committee and is potentially serious for the Department and the taxpayer. There is a difficulty in getting the case into court and we are involved in ten separate cases. We have been challenged by a series of insurance companies at every step along the way. The most recent challenge, in the early part of this year, related to jurisdiction and there was an attempt to get a judgment stating the case should not be heard in Ireland. We won the case and the court refused to refer it to the Supreme Court, which we see as a highly significant development. For the past two years we have engaged the services of a private firm of solicitors, one of the big firms here in Dublin, and they have been assisting us in bringing order to the complexities of dealing with insurance and insurance law. We have now reached the point where we have effectively got all the elements together and that has taken much work and time. The cases are lined up together and I can assure the committee of our determination to bring this to a conclusion. We have been stalled at every step along the way but we will bring the cases to court.

Deputy Bell

I take it we are in a position to ask general questions of the Department?

Chairman

As you know, the other item is on the agenda also, so feel free to speak to that as well.

Deputy Bell

I am particularly interested in a matter which has come to light, over the past couple of months, and which I do not think the Attorney General has yet had an opportunity to study.

As we suspected for quite a long time, there is wholesale defrauding of moneys vis-à-vis the Department of Agriculture, Food and Rural Development. It is not confined to the Border counties and, during the foot and mouth crisis in County Louth, it was discovered that subsidies from the Department had been paid for thousands of non-existent sheep. This was being done in collusion with subversive organisations on both sides of the Border. I was horrified when it was established that this was not just confined to the Border areas and was happening very far south of it, in Tipperary and elsewhere. Well known criminal operators, masquerading as farmers, were securing millions of pounds of taxpayers’ money from the Department of Agriculture, Food and Rural Development.

That is a well known fact. Will Mr. Malone indicate to the committee the steps he and the Department are taking in this regard? My information is that this is not confined to sheep and were it not for foot and mouth it would not have been made public. Senior colleagues in the Dáil, on both sides of the House, have been aware of this for many years and the information had been passed to the Department of Agriculture, Food and Rural Development. Its people on the ground were well aware of what was happening. The taxpayer has been defrauded of millions and perhaps billions of pounds and it is well known that millionaires have been created in the Border area by moneys paid out by the Department. What is going to be done about that?

Chairman

That is a comprehensive statement rather than a question but it is pertinent and very much in the media so I would like Mr. Malone to respond. Although a lot of the attention is focused on the Border, there has been much attention given to Tipperary in recent times with instances of calves and other animals wandering all over the place. Perhaps you could comment on the implications of smuggling.

Deputy McCormack

I want to ask the same question as Deputy Bell, but from a slightly different perspective, regarding the sheep that were being imported from Northern Ireland during the foot and mouth crisis. Departmental officials were informed more than a year and a half ago that sheep were being entered into factories and paid for under noms de plume. The signatories did not exist. During the foot and mouth crisis staff at one mart were well aware that their accounts showed that cheques had been accepted from sheep and cattle buyers made out from a particular meat plant under fictional names. What action was taken at the time to ensure this practice ceased? Not alone was the VAT refund being claimed on the sheep, but even more serious was the fact that sheep imported from England via Northern Ireland were later exported stamped as Irish meat. These sheep could be bought cheaply in England because of BSE and other scares. When this practice was discovered during the foot and mouth crisis it could and did have a serious effect on our future export trade.

Deputy Durkan

I congratulate the Secretary General and his officials for their efforts in curtailing the threat of foot and mouth disease. Credit is also due to the wider community for co-operating with the measures taken, in particular, the tourism industry, the sports and leisure industries and a series of other groups which had no direct involvement, but made huge sacrifices to make the campaign a success. However, it revealed some appalling gaps in the system, which did not suddenly emerge. In fact, the Department of Agriculture, Food and Rural Development seems to have had knowledge of them, or, at least, should have known about them.

It is extraordinary that I and others have tabled numerous parliamentary questions in recent years requesting information on whether meat and animal imports posed a threat to the health regime applicable in this country. Those questions were tabled not once or twice, but on countless occasions. We were repeatedly assured that everything was in order, there was no threat to the food chain, no possibility of a threat to the animal health regime and the Department was on top of its game. The actual position was quite the reverse. There were animals appearing almost as tourists and then leaving the country again. This was pointed out recently and I agree with my two colleagues that it presents an appalling vista in terms of the failure of the Department to grapple with a problem right under their noses. Departmental staff were in situ in factories, yet triple decker lorries loaded with sheep from other jurisdictions must have arrived at the locations in question. Someone should have asked questions about their origin. Obviously, no one asked questions about the state of their health or the potential threat they posed to the industry.

The level of duplication in the sheep industry is truly appalling. We have all dealt with cases of unfortunate farmers being disqualified from receiving grant aid for three years for failing to cross a t or dot an i, yet, in the middle of all this, it appears there was a highly organised campaign to defraud the system, so well organised that it managed to defraud the system of up to 40%. That is an extraordinary situation and I cannot understand how it happened without departmental officials having some knowledge of it.

I have felt that something was wrong since three or four years ago when, leaving Leinster House late one night, I saw a triple decker lorry loaded with sheep coming through the centre of Dublin. I could not understand where they were going to or coming from because it was an extraordinary hour of the night for sheep to be going anywhere. I am quite sure they were not on their way to a disco. It worries me, given that we know that the correct procedures are applied in respect of individual farmers, many of whom have been seriously disadvantaged financially as a result of the strict application of the rules, that large scale abuses could take place on an ongoing basis without the Department's knowledge.

Chairman

I will allow Mr. Malone some latitude because Deputy Ring indicated in his letter that he wanted an extensive investigation into all aspects of the factories. We are taking this as a platform for discussing these issues with the Department of Agriculture, Food and Rural Development and later with the Revenue Commissioners.

There are two further points. Why did the Department of Agriculture, Food and Rural Development ignore a letter sent to it on 16 November 1998 by the IFA, a copy of which I have in front of me and in which the IFA indicates its concerns about marketing, traceability, VAT fraud and animal disease? Let me add that animal disease concerns were expressed long in advance of the foot and mouth disease outbreak. It is particularly interesting that VAT fraud was highlighted in November 1998. The fact that there is fraud was proven recently by the Department's recovery of over £350,000 in 11 factory investigations. A further 30 are planned. One might ask why the Department did not act when it received the letter.

In the factories alone the Department has 405 permanent officers in AO grades and 86 permanent officers as well as 700 part-time veterinary inspectors to augment the permanent veterinary staff at meat processing plants and ports. An extensive staff is engaged in the sector. Many are concerned about what has been happening in meat processing factories in recent years. Now that it has been established that VAT fraud was involved, have any prosecutions been initiated against any of the factories involved in malpractices and will any be launched in the future?

I remind Deputies that we are having a general debate in the context of Deputy Ring's letter.

Deputy Bell

Let me finish off on that issue because I introduced it. The Secretary General has presided over what is, possibly, one of the largest frauds in the history of the State. It has been suggested that the Department - at least, its staff on the ground - was well aware that this was happening with sheep and in other areas. In view of these facts, would the Secretary General be in favour of the committee carrying out a detailed investigation into the millions, possibly billions, of pounds defrauded from the taxpayers of this State and the European Community and would he be willing to co-operate with it?

Deputy Rabbitte

I congratulate Mr. Malone as head of the group of officials who gave above and beyond the call of duty during the recent crisis and on the outcome of those efforts. I hope it stays that way.

Ministers have recently made, understandably, indignant statements about practices discovered in the industry. Is it not fair to say that we have known about these for a long time and that we have considerable evidence about them going back to the beef tribunal? Is it not lamentable that it requires a national crisis before we can agree that something must be done to eliminate them. There are, probably, serious difficulties in apprehending the smugglers. We would not have smuggling, at least on the same scale, if they did not have markets for their goods. Surely it is possible to pinpoint these people who are in collusion and are involved with some of these practices in the industry. I suggest to Mr. Malone that it is not fair that major industries such as tourism should be put at risk because of the united stand taken in the House and in the country on the foot and mouth disease question. In terms of comparing the contribution from agriculture and tourism and so on, the ratios have changed dramatically in the past 25 years. We still take that united stand for all the reasons I need not go into. Many people in the tourism industry have been hurt, thankfully the crisis has not lasted as long as it might have, and it is therefore in all our interests that we deal with these practices that have been prevalent for so long.

Mr. Malone

A number of points have been made and I would like to separate out some of the issues. I appreciate the recognition of the effort made by the staff in the Department to deal with the foot and mouth disease threat, as it was difficult and demanded much time and effort. We have learned many lessons from the episode about practices that were taking place and that may have contributed to the problem.

If we take the issue of cattle or bovines as we refer to them, we have a very good identification system based on the best of modern technology. It is well known that we have a central database in Bandon where animals are identified individually from birth up to the point of slaughter. The system stands up to scrutiny and it is as good a system as one could find in Europe or anywhere. We have looked at traceability systems elsewhere.

There is a culture of smuggling and, as Deputy Bell said, where there is a border there will be smuggling. Some of the activity is criminal activity and we must recognise it for what it is. The people involved have not just been smuggling animals but other things that may have been potentially more threatening at a certain stage. Deputy Bell made a point regarding what emerged in Tipperary, and as I understand it, calves were brought into the system with the intention of working them into our animal identification system. Such smuggling was clearly very sophisticated because when we go back to 1990 or 1996 the very survival of our beef export industry depended on us being able to give guarantees that the beef and the cattle that we exported were of Irish origin and that nothing came in over the Border.

We put enormous effort into that and far from turning a blind eye, I reject totally that this was happening with the knowledge of our people. That is not the case because the very survival of our industry depended on it due to ban on the export of product from the United Kingdom, of either cattle or a certain stage beef, because of BSE. That applied both to Great Britain and Northern Ireland and there was an obligation on them not to export. We had an obligation to ensure that what we certified and guaranteed was of Irish origin and where we had any doubt animals were seized. Approximately 3,000 animals were seized and between 1,500 and 2,000 were destroyed. We took a ruthless approach and detained animals until their identity could be proven.

We have a special unit in the Department to deal with that area. It is well known and was established to deal with the use of illegal growth promoters. We had a great deal of success with this unit. That problem by and large was controlled and the work of the unit was dedicated to dealing with issues such as this. We have actually brought prosecutions. There is no evidence to show that this was happening under the noses of our people or that the staff in the Department knew that this was going on. We have a good control system in relation to livestock premia generally. I would argue very strongly that we have a very good system, if one looks at the level of disallowance, the extent of the controls and the data and information that we have in relation to cattle.

What emerged in Tipperary was a surprise to everybody. The Garda are investigating it and people have been brought in for questioning. This is primarily in the hands of the Garda and it is likely that there will be prosecutions. Our people are supporting the Garda with their investigations and wherever it leads it will be dealt with. I reject the suggestion that there has been wholesale smuggling of cattle or that the system has been defrauded of millions.

Chairman

The millions probably referred to sheep. We recognise that there is probably a good system for bovines, but our attention was focused on various incidents in Tipperary recently.

Mr. Malone

The reason I dealt with that part of the question is that the issue in Tipperary was mainly in regard to calves.

Deputy Bell

Mr. Malone is not telling us anything that has not already been in the public domain.

Mr. Malone

If I could deal with the situation regarding sheep where there is a problem.

It is a problem that the price of male calves in Northern Ireland, for various reasons connected with BSE, is not very high. There is an economic temptation.

Chairman

There is an economic temptation to bring calves down to the South, and they have been coming down for that reason. Can they not be assimilated into the system more easily? Does Mr. Malone know what I am saying?

Mr. Malone

We have tried to examine the loopholes through which they are assimilated into the system. One suggestion was that certain people tried to use the phenomenon of twins, for example, to deceive the authorities. It was also suggested that if there was a particular cow culled, smugglers would try to designate that particular cow as the mother of the calf. Clearly, it could then be done only in small numbers. We have tightened up the system in Bandon, a system we have been putting into place and improving over the last few years. We have been closing off the loopholes. It is noticeable that the calves in Tipperary had no tags and were not yet assimilated into the system. I expressed my surprise to Deputy Rabbitte. Given the difficulties that arose concerning BSE and the consequent need to protect our position in the market, I am surprised that any sensible farmer, apart from the smugglers, would take smuggled animals into his herd.

We had no tagging system here and our own sheep had no identification. We had been arguing about getting one. There was resistance in the industry in general to introducing such a system, not just among farmers. It was seen as bureaucratic and creating a burden for producers. Sheep prices were not good and it was thought that tagging would not add much value to them. This put us at a serious disadvantage because if one cannot identify one's own sheep, how can one identify anybody elses?

There are two points there. First there is the point that we ignored the letter. We did not ignore the letter. Second, this was discussed at a sheep forum at which the IFA were represented. There was a big discussion on it. The difficulty is that the Revenue went in, did their checks but I do not know what they actually covered. A figure of £300,000 was mentioned. We satisfied ourselves that the Revenue carried out investigations. There are further investigations taking place at the moment primarily driven by the Garda with the support of our special investigation unit. I am not in a position to say whether prosecutions will result from these. I think they will, but it is primarily a decision for the Garda.

There has been a huge investigation and that is well known. The Garda and people from our organisation have given a number of weeks in meat plants. We alerted our staff - and I can show the circulars - to be on the watch out for sheep of dubious origin. They have said to me, not unreasonably, that if we had no identification system for our own sheep then looking for animals that might or might not have a hole in the ear would not be very relevant. What must also be borne in mind is the throughput of sheep in a plant on a given day. There could be several thousand slaughtered on a particular day so just checking ears for what might or might not be a hole is not really the answer. The answer is to get a proper identification system. We have got agreement with the farm organisations for the identification system and it will come into place over the next few weeks. When we have identified our own sheep we can then satisfy ourselves as regards the origin and identity of imported sheep. On the issue of the VAT the point is that this is an investigation that can only be conducted by Revenue. We can only provide support for what I know is a very in-depth investigation.

The issue raised by Deputy Bell relates to the ewe premium payment. There is support for farmers by way of ewe premium schemes. More than 40,000 sheep farmers avail of it, a declining number. The question asked is clear. It is "How can we be satisfied that all the sheep are there?". There have been rumours and we have heard them that the sheep may not exist. At one stage we used to carry out 100% inspections. Bearing in mind all the other schemes that now exist it was impossible to continue that level of inspection. We now carry out a 10% inspection. Ten per cent of applicants are inspected. We target the 10% on the basis of risk assessment. There are different categories in relation to risk, track record, style of farming etc. In 70% of those inspections we give no advance notice but just turn up on the farm on the day. Because we have the land parcel identification system, developed in the mid 1990s which provides a map of the individual farm, we have the advantage of being able to enter the farm and find the sheep without the assistance of the farmer.

There is a problem in relation to mountain sheep and mountain grazing. That would constitute the other 30%. The reality there is that if we turn up without advance notice the sheep are on the hills, so we give 48 hours notice. That is the only way the system can operate. There is a retention period and the farmers have to hold the sheep for 100 days. We have attempted to synchronise the retention period north and south to try and limit the temptation to play the system on both sides of the Border.

What happened in the Cooley peninsula was exceptional. We did not think such an event would happen but it did. All movement was frozen and we went in and slaughtered sheep. We slaughtered 48,700 sheep. The total number of sheep on which premiums were applied for, was 37,000. Some farmers had more sheep than the number of premiums claimed and some farmers had fewer sheep than the number of premiums applied for. Some farmers did not have any sheep at all. By our calculations, about 16 farmers did not have sheep. That was a reconciliation exercise.

What is also significant is that 80% of the problem was within three kilometres of the Border. Clearly, we will give the individuals involved an opportunity to explain. Some correspondence in a newspaper yesterday seemed to imply that we had calculated incorrectly. We will now contact those farmers and ask for an explanation. Some may have good explanations, some may not. Where there is evidence of fraud, the matter will be referred to the Garda.

The question then arises whether this is replicated in the rest of the country. I do not think it is, but I cannot be absolutely certain.

Deputy Bell

You could be proven wrong.

Chairman

There is an article in a newspaper today about the ewe premium. It says that in a random inspection, one in 20 claims has been fraudulent. You say you operate random selection and have about 10% inspection. The article says that 5% of that is found to be fraudulent. Is that true?

Mr. Malone

No. I can give a breakdown of the cases in which we apply penalties. Five per cent would be horrific. There are millions and millions of sheep in the country——

Deputy Durkan

Not as many as you thought.

Mr. Malone

The point made is a valid point. In many incidences, the income, or the profit, was the premium. I remind the committee that there was no identification system. We are trying to build a flock register, but inspectors cannot do the impossible if there is no identification. We are now asking the producers to keep a flock register and we will carry out checks. We have paid nothing for this year. Payments are due in June and we will carry out checks. The retention period ends in April, but we can make many documentary checks. By virtue of what happened with the foot and mouth disease crisis when livestock movement was frozen, we now have information in relation to movement. Any movement that took place then was under a permit system. We can also look at the records with regard to slaughtering.

The Deputy asked about the 5% so-called failure rate. There is a severe penalty system applicable to incorrect applications. The farm organisations and many producers argued that it erred on the draconian side in that it meant exclusion from the scheme for up to two years. In the year 2000, there were 97 cases of one-year exclusion, and 101 two-year exclusions. I will explain the difference between the two. A one-year exclusion is applied where a farmer makes an application that is not totally valid; a two-year exclusion applies where a farmer makes an application that is fraudulent. In 1999, there were 80 and 98 cases, respectively, with 92 and 109 in 1998. There are roughly 90 to 100 cases each year. These figures are as a result of our inspections.

Chairman

This is based on a 10% inspection, Mr. Malone. That is important. If the number 101 is extrapolated, and if you take percentages, then it could be 1,000, if you were doing 100% inspection.

Deputy Bell

May I follow that point up, with your indulgence, Chairman? Mr. Malone has answered the question in part. The farmer from Mayo goes to Castlebar to claim a premium. He fills in the form and declares that he has 1,000 sheep even though he may only have 550. In that case are officials sent out from the Castlebar office to go up the mountains and check that the farmer has 1,000 sheep? I know that it does not happen. I spoke with a farmer who had claimed a premium. He told me that he could put down any figure he wished and he would be paid by the Department, without any certification. No head count of the sheep was taken. The only one who knew the number of sheep on the mountain was the sheep dog, because even the farmer himself did not go up the mountain.

Mr. Malone

It depends. Perhaps I did not explain clearly. We have a 10% inspection rate. In some situations, that farmer could have been inspected, in other situations, he might not have been inspected. The difficulty is that we cannot do unannounced inspections in relation to mountain sheep. We give 48 hours notice to farmers with sheep on the hills because they have to round up the sheep.

Chairman

They could round up more than they own.

Mr. Malone

That is a risk, yes. We took a great deal of criticism in another Dáil committee when we were told that our inspection system was unreasonable and over the top. We try to strike a balance. The answer goes back to identification. The other important point is that the farmer has to have a quota. There is a fairly tight system in regard to allocation of quotas, so we know who has the quota. If a farmer claims for 1,000 sheep, he must have a quota of at least 1,000 sheep. Broadly, the same people claim from one year to the next.

I accept the difficulty outlined by Deputy Bell in relation to the Border.

Deputy Bell

We only have small amounts in County Louth. There are much larger amounts in other parts of the country.

Deputy Durkan

Something bothers me about this. I do not accept the notion that the sheep population cannot be identified in mountainous areas. It must be possible to devise an inspection system that will identify the total number of farmers who are alleged to have animals grazing and who are drawing subsidies. Even with 24 hours advance notice, it should also be possible to descend on a reasonable number of people in that mountain area. It should be possible to bring them all together and take in ten, 12 or 14 different herds at the same time. It would not then be possible for different farmers to all present the same sheep. I do not accept that this cannot be done. The inspection of 10% leaves the whole thing wide open. All animals in a particular region should be inspected, otherwise we will not eliminate this.

The penalties should be such that they discourage people from breaching the law. However, people are currently encouraged to devise the most extraordinary measures to circumnavigate the system without being caught. It is far better to take a chance on not being caught than to comply with the system. This needs to be reviewed.

Free movement under the Single European Act was mentioned earlier. There are restrictions relating to animal welfare, health and the food chain that must be complied with. Many of us have tabled several parliamentary questions in recent years pursuing these issues and each time we were informed that there was nothing to fear and that everything was in order. We were led along that path until the foot and mouth disease outbreak. Suddenly it came to our notice that everything was not in order both in the cattle and sheep areas.

I could not understand how a lorry load of sheep could be touring through our capital city in the middle of the night. I had no idea where they could be going. However, someone knew where they were going. Apparently they were heading towards a factory for redistribution to a number of producers who in turn would give them naturalisation and they would become Irish sheep to go into the Irish food chain or be exported. It is an awful reflection on the system here that it was alleged that the foot and mouth outbreak in France originated from animals re-exported from here.

Deputy Dennehy

When we get into this debate, we usually start chasing sheep around mountains. We lose the run of ourselves and nothing gets done. How closely does the Department of the Agriculture, Food and Rural Development work with the Revenue Commissioners to eliminate this problem? I am not talking merely about giving evidence of numbers. Earlier speakers mentioned that it was like receiving stolen goods. If there were not meat plants most of this problem would not exist. We should be able to properly police the small number of meat plants and abattoirs. Are we making a real concentrated effort at that level? That is where the big money is being made.

What percentage of enforcement or inspection staff is involved in that end of the business? What percentage is used for spot inspection of farmers and the enforcement of the regulations? Rightly or wrongly, the public perception is that there is very little enforcement at the plant end. I appreciate that individuals are put in place for maybe 24 hours at a time.

I draw the comparison to the drugs problem. Nothing was done until we got real cross party co-operation and everybody working together rather than for their own objectives. We kept passing the problem from one Department to another. It is up to the Revenue Commissioners to work closely with the Department of the Agriculture, Food and Rural Development. I appreciate that the Department has put in place a new programme. What activities have taken place in that regard?

As Deputy Rabbitte mentioned earlier, if we can eliminate the difficulty at the processing end, that will go a long way towards curbing this problem. We have not seen enough cross-departmental co-operation. The Revenue Commissioners have the objective of collecting tax revenue and the Department of the Agriculture, Food and Rural Development has objectives relating to animal and public health. However, they do not seem to work closely together.

Mr. Malone

Deputy Durkan asked about the inspections. The European Commission insists that we try to build in risk assessment. Part of the risk assessment would be targeting larger flocks. Occasionally we have inspected a total area as suggested by Deputy Durkan. There are many problems relating to commonage in Louth and in the west. We have tried to inspect the whole commonage as a unit. We target our inspections at the areas where we believe the greatest risk exist.

If there were a proper identification system and register, we would then be armed with the database as we go out. That is an advantage with cattle. We have significant data relating to individual farms about animals they should have on the farm at a particular time. That is where we need to get to for sheep as far as premia are concerned.

Sheep being transported long distances is not a peculiarly Irish phenomenon but happens throughout Europe. In Britain foot and mouth disease was transported up and down the country because sheep can move from Devon to Scotland in a day. Sheep are being transported directly from Britain to France and from Britain to Ireland to France. A real issue has come to light relating to this transport. France had what seemed a good idea from an animal welfare viewpoint of having staging posts.

Deputy Durkan

Why would a sheep need to travel from Britain to Northern Ireland to Southern Ireland and on to France?

Mr. Malone

The level of criminal activity——

Deputy Dennehy

In 1989 and 1990 we were dealing with bovine TB eradication. The reasons given then also related to the cross-border trade with Northern Ireland as well as to the unfortunate badger. The same rogues were blamed, including transport workers. That is 12 years ago. We said then that we would clamp down on these practices in the context of the cattle trade. Control mechanisms were to be put in place. The same rogues are blamed now and little seems to have changed despite the planned introduction of sheep tagging, which I accept is crucial. There are huge problems and the same people seem able to get away with criminality in a culture of nods and winks. Many know who these people are but nobody seems to be able to deal with them effectively.

Mr. Malone

The Department must operate within the law. If we are to prosecute people we must use due process. The deterrents up to now have not been strong enough. Growth promoters were a huge problem in the early 1990s. Within a few years the problem disappeared because real deterrents were put in place and real penalties handed down. This episode helped the Department learn valuable lessons, especially the need for greater penalties. Those operating within the law have nothing to fear but those operating outside the law should have something to fear. That requires the threat of court and penalties.

Strong penalties and legislation of the type brought in to deal with the hormone problem are now in place. However, we have brought individuals to court who were fined £500 or £1,000, which is no big deal. These people continued to act as before. There is perhaps a cultural issue to be dealt with in that there may be a certain tolerance of such people who have been seen as fulfilling a function. If people are not prepared to sell to and buy from such people, that solves the problem also.

Deputy Bell

In areas near the Border some people no longer bother going to politicians when their lorries and cattle are impounded. They make so much money from their rackets that they can afford to have a lorry and stock confiscated and just write it off. That indicates that the law is not strong enough to deal with this issue. I spoke to a person whose lorry and cattle were confiscated by the State. He did not bother to look for their return or to pay the fine imposed. The deterrent is not strong enough.

This is not a legislative committee but we can make recommendations to the Minister and to the Government. Is Mr. Malone saying that the law is not strong enough to deal with these bandits who are making more money than drug barons? Several of their estates and properties have been confiscated by the CAB. Why can we not apply the same rules to those making millions? It has been said to me by a farming representative that the only poor farmers are the honest ones. Is the law being applied strongly enough?

Mr. Malone

Deputy Bell

As our most powerful weapon, perhaps the Comptroller and Auditor General will outline the steps he can take to look at the financial implications of what has transpired within the industry.

Mr. Purcell

While my office carries out audits, there are several groups involved in the audit of the Department of Agriculture, Food and Rural Development. Primary responsibility lies with the Department to impose its own control procedures. A value for money investigation was carried out into the premium schemes within the last two years and considered by the committee. Some of the shortcomings in the schemes were pointed out, including the difficulties in administering a scheme of inspection. While some work has been done, my office does not have the resources to undertake the type of investigation mentioned by the Accounting Officer. Many officers of the Department are involved, as are many gardaí. It would be simply impossible for us to carry out such a probe. We try to establish, as far as possible, the effectiveness of systems within a Department in terms of risk minimisation.

One must be realistic and admit that fraud will never be eliminated, but efforts can be made to create a system which enables the reduction of fraud to a tolerable limit. The Department of Agriculture, Food and Rural Development has worked to minimise fraud in recent years. My predecessor and I have been critical of some elements of the Department's work. There has been evidence of improvement in recent years, but it has been a slow process as the culture of fraud cannot be changed overnight. Political commitment is needed. The Department has to work in a real environment and not an ideal world. The Chair mentioned the Revenue Commissioners' role which I will try to take on board, given the resources available to me. With the committee, I will consider what can usefully be done to add value to the process, rather than duplicating the work of the Garda, the Department, or the Revenue Commissioners, when more facts are obtained.

Deputy Dennehy

To be fair, Mr. Malone referred to the political acceptance of malpractice as a cultural thing for a long time. As there is public awareness of and support for action, this is the time to act. The recent scare acted as a catalyst for something to be done. Many of the things to which a blind eye was turned will now be acted upon if we come up with suggestions. I accept Mr. Purcell's point that we should not duplicate measures being taken elsewhere, but somebody has to cry halt. Action would be accepted because of the new public awareness. There is a fear within the farming community, which was not previously evident, of the damage that might be done as a result of malpractice. This is the time to act by strengthening weak areas and removing loopholes.

Deputy Rabbitte

I have a few brief questions on the rest of the agenda.

Chairman

Regarding the rest of the agenda, we have not yet discussed the Vote, but can do so at our next meeting. If the committee assents and departmental officials are available, I ask the officials to return before the summer recess. If our programme is large, such a meeting can be scheduled next Tuesday. There are many issues that members would like to discuss on another occasion and arrangements can be made if they wish. I hope Mr. Moloney and other departmental officials will come to speak to the committee before the summer recess. By that stage we hope to have met the Revenue Commissioners to discuss their involvement in the factory issue. As a result of that meeting, there may be questions left unanswered which can be teased out at our meeting before the summer. We could almost write a thesis on sheep at this stage, given what we have heard from the Comptroller and Auditor General.

Foot and mouth disease and the related matter of smuggling have been catalysts for action. Draconian legislation has been introduced in the Dáil in recent times to curb rogue smugglers. If a tagging system was implemented effectively, officials from the Department of Agriculture, Food and Rural Development could return to the committee with positive things to say. There have been problems which have been recognised by the Department. If there is to be a bilateral agreement with the North and if lamb from there is extensively processed here and then sold to France, does the agreement allow it to be accepted as Irish lamb?

Mr. Malone

Yes. As lamb is identified with a stamp indicating the plant of origin, that would be understood.

Chairman

Can lamb from any one of the 32 counties be sold as Irish lamb?

Mr. Malone

Yes.

Deputy Rabbitte

In terms of the imposition on the clerk in having to organise extra meetings, I presume members will agree it would not be a problem if we were to meet immediately after the House formally rises, in the early weeks of the recess.

Chairman

We received representations from my colleague, Deputy Ring, who has raised these concerns over a period of time. I am anxious that, in order to put this issue to bed and feel we have investigated it thoroughly, we tease out the revenue implications and, having had the Revenue Commissioners in, that we should be able to return to this subject with the Department of Agriculture, Food and Rural Development. Concerns have been expressed today, some of which have not been completely allayed. We have heard a lot of constructive suggestions in what has been a constructive discussion.

This debate has run in the media for a considerable period of time and we, as the Committee of Public Accounts, are here to ensure there is value for money, the whole objective of the Comptroller and Auditor General. We had to have this discussion, rather than read about all these facts in the media, and will be interested in hearing how the Revenue Commissioners are progressing, considering they have gone through 11 processing units already and recovered £355,000. We will be interested in hearing how they are managing with the other 19.

I am also interested, Mr. Malone, in the November 1998 reply of the IDA highlighting the problems. You said that you automatically alerted the Revenue Commissioners to the situation. We are very interested in getting a copy of your first letter to them, a follow up to a letter you received from the IFA alerting you to the VAT problem and other issues.

I thank Mr. Malone and his officials for their attendance.

Deputy Durkan

The next day I want to come back on pensions, a matter to which the Comptroller and Auditor General alerted me.

Chairman

Thanks are also due to the Department of Finance officials for sitting through the entire session.

The witness withdrew.

The Committee adjourned at 1.15 p.m. until11 a.m. on Thursday, 24 May 2001.